Industrial production growth picked up in September but came in below expectations as retail inflation climbed to double digits in October, strengthening the possibility of a further rise in interest rates to tame prices, which in turn could weaken prospects for an economic recovery. Astrong increase in industrial production was widely expected to herald an improved second-half performance as a good monsoon delivers robust rural demand, the effects of an export recovery ripple through the economy and sentiment perks up as elections approach. The numbers, released after the markets closed, are likely to further dampen already weak sentiment. Growth in factory output as measured by the Index of Industrial Production (IIP) rose 2% in September, from a year ago, data released on Tuesday showed.Expected Growth was 3.5% IIP growth for August was 0.4%, revised down from the 0.6% estimated initially. The consensus had been for a 3.5% rise in output in September after the core sector, which has a 38% weight in IIP, had risen 8% in the month and exports were up 13.5% in October. Higher production ahead of the October festival season had also been expected to add heft to the September numbers. "The numbers have disappointed as the core sector growth of 8% had raised expectations," said DK Joshi, chief economist, Crisil. "Even the core sector recovery can't be called sustainable based on a month's data. Overall industrial and manufacturing activity remains sub par." Second-quarter GDP growth will be weak at below 5% although the second half of the fiscal year may see a pickup, he said. Government officials said, however, that the data was positive. "It is moving in the direction which we all were hoping it will," said Arvind Mayaram, secretary, department of economic affairs. From 0.4% "it has gone to 2%, which I think is fairly good," he said, adding that the pickup in electricity generation showed coal had started moving. "September numbers are better than that of August. Now at least the numbers have turned positive and growth will accelerate from here in the second half of the fiscal," said C Rangarajan, chairman of the Prime Minister's Economic Advisory Council. Cumulative industrial growth in April-September was just 0.4%. Meanwhile, driven by high food prices, consumer price inflation rose to 10.09% in October from 9.84% in September, raising chances that the Reserve Bank of India (RBI) may lift interest rates further in its December 18 policy review. Industrial production was up 1.7% in the July-September quarter against a 1.1% contraction in the April-June quarter. Policymakers are counting on this small recovery to develop into a sharper rebound in the second half of the year to lift the growth rate for the entire fiscal to over 5% even as experts said second-quarter GDP growth is likely to be only slightly better than 4.4% reported in the first quarter. Growth had slumped to a decade-low 5% in the year to March. "Steps taken are beginning to yield results," finance minister P Chidambaram had said earlier this month, reeling out data that showed the economy was gathering pace, an assessment that does not yet have widespread backing. A stronger showing by the economy would bolster the chances of the United Progressive Alliance government at next year's general election. "Manufacturing, which accounts for the bulk of the IP index, is virtually flat from a year ago as demand for consumer durables and capital goods is still soft, mirroring poor consumer and business confidence," said Glenn Levine, senior economist, Moody's Analytics. Industry growth will remain subdued for now, said Soumya Kanti Ghosh, chief economic adviser, State Bank of India. "Going forward, IIP is likely to be weak over the next months, before showing a tentative recovery towards the end of the fiscal," he said. |
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